Aeropostale (ARO) and Buckle (BKE)

Two Top Retail Stocks to Buy Now

August 13, 2009

The key to the economy's future continues to be the consumer. As long as folks are out there buying, then the economy will only fall so far. Most consumer stocks, however, have been beaten down since consumer spending went down the drain last year. There are a few exceptions. My team and I have pinpointed two consumer stocks that are riding high, thanks to the strength of an unstoppable spending force.

My friends, that unstoppable force is called…teenagers.

For months, I've discussed how cash-strapped consumers have reined in spending and that this, in turn, has weighed heavily on the retail sector. One of my top stocks, however, is bucking this poor sales trend thanks to the fact that it targets teenage girls. Aeropostale (ARO) operates more than 900 stores in 48 states that sell clothes to trendy teenagers. The company's most popular brands–Aeropostale and Jimmy'Z Surf Co.–include jeans, T-shirts and accessories.

Aeropostale designs and sources its own merchandise so that it can quickly respond to trends. This strategy seems to be paying off. In July, the company's same-store sales were up 6%, while competitors like Abercrombie & Fitch (ANF) were off by 28%.

Clearly, ARO continues to make money despite a very competitive retail environment. What's more, the company is trying to extend its reach to the younger siblings of its teenage customers. The company recently announced that it will open 10 P.S. stores this year with products geared towards kids aged 7-to-12–a group referred to as "tweens" in the retail industry. ARO is aiming to eventually open more than 500 of these P.S. stores in order to capitalize on what the company describes as an underserved $14 billion market.

Aeropostale has posted 13 straight quarters of record earnings growth and 11 consecutive years of rising sales. The next earnings report is due on Thursday, August 20, and I'm expecting more great news.

Aeropostale is a solid buy.

My other teenage super stock is Buckle (BKE). The company operates 382 primarily mall-based stores in 39 states. The retailer sells clothes to fashion-conscious 12- to 24-year-olds, and makes about 40% of its sales in denim and jeans.

BKE's aggressive expansion plans will push its same-store sales numbers higher as new stores pop up across the U.S. While the entire sector looks like it's in shambles, this specific stock is a diamond in the rough. I have a 20-year-old daughter, and I can tell you from personal experience that Buckle's typical customer knows no such thing as "weak spending!"

This is an excellent time to pick up shares of Buckle, because the stock recently took a hit after a poor same-store sales report. But we have to put that in context because what's "poor" for Buckle is outstanding for most other retailers. The company had delivered 22 straight months of double-digit increases in same-store sales. In July, same-store sales were only up 2.8%. Still, that's far better than most retailers, which means Buckle is gaining market share.

Just like Aeropostale, Buckle will report earnings next Thursday, August 20. Wall Street's consensus is currently for 56 cents a share, which represents earnings growth of over 80%. With the recent sell-off, shares of BKE are going for about 12 times this year's earnings. Buckle is a very good buy.

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